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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
  • Active Managers Are Getting To Work
    "Vanguard economist Joe Davis kicked off the conference with his view of the future of work. In the next five to 10 years, studies suggest, 50% of jobs in the U.S. are projected to be lost to automation. India could lose 69% of its jobs, and more than 75% of China’s jobs could be wiped out. But Davis is optimistic: “We need to change our mind-set about technological change. Jobs do not get automated away, tasks do.”
    Based on Vanguard’s analysis, tasks have changed for every occupation since 2000. Chefs, astronomers, and photographers saw the most change. (Economists the least, Davis joked.) He sees this as a positive, because automation means that workers can farm out repetitive tasks and devote more time to uniquely human ones, such as information analysis, communication, relationship management, and creative thinking.
    Active shops have responded to this technological threat by putting those “uniquely human” tasks into an automated form—strategic-beta ETFs "

    He sees this as positive because workers can farm out repetitive tasks. That's assuming the worker owns the technology and has a choice which tasks are farmed out. It is the business and technology's owners that make that decision and they will choose to fire many workers and replace them with tech. In the money management industry that means only those workers with skills that are uniquely human, that are so specialized that a computer algorithm which picks stocks can't replace them will survive. The terrible irony is many financial analysts and money managers who boast of "capitalist creative destruction" are about to see their jobs creatively destroyed by the technology they once invested in and celebrated. The question for every worker becomes what can you do a computer program, algorithm or robot can't?
    LewisBraham in Fund Discussions
  • Josh Brown: When The Hedge Is Worse Than The Thing Being Hedged; Black Swans & John Hussman
    I think LB makes a good case for holding cash or high quality bonds along with equities.
    But, holding short equity positions is inherently hazardous. (Theoretically, a stock can continue to rise forever.) It boils down to the skill of the manager to effectively implement a short selling strategy - and avoid losing his shirt in the process. Not to say using short positions to hedge equity risk is a bad approach - just that John Hussman hasn't demonstrated the capacity to execute the approach effectively. And, while he somewhat vehemently denies shorting equities, Hussman's HSGFX often behaves as if (effectively) short the market.
    Alternatives like gold, foreign currencies, commodities, real estate, etc. constitute another form of hedging. Personally, I like to keep a small hold in funds which include those types of assets. I fully recognize that that dilutes my returns as compared to being invested only in equities. Much disagreement exists on the board re the subject - and I've no desire to become a spokesman for PRPFX or any other fund investing in such alternatives.
    BTW: The brains at TRP have held for several years now that we're in the midst of a cyclical bear market in commodities. They would probably say that we're in the 5th or 6th inning. While I've disagreed a bit with that bearish outlook, I suspect they're mostly correct in the call. It's relevant here only in that commodities are often viewed as an alternative investment to equities.
    Yes. Agree with LB that equity markets don't always rise. They can (and do) experience significant multi-year periods of negative performance. And I fear very much that our instant-touch media (24-hour financial reporting and internet access) have magnified the always present human herd instinct. If correct, that implies both stronger bull markets and worse bear markets ahead than have occurred historically.
    hank in Fund Discussions
  • Josh Brown: When The Hedge Is Worse Than The Thing Being Hedged; Black Swans & John Hussman
    If the future is truly uncertain, why should investors have a long bias in their portfolios? All we know is that in the past this strategy has worked, not that it will work in the future. Applying some blind probability analysis based on that past performance without asking why that performance occurred denies the existence of that uncertainty. Investors need to figure out if the same assumptions that drove stocks up in the past still apply today and will continue to drive them up in the future.
    Among those assumptions--1. the continued dominance of America's largest publicly traded multinational corporations 2. If yes to one, a fair or cheap price paid for a piece of that dominance, i.e., valuation 3. strong or moderate macroeconomic conditions--low or falling interest rates, modest inflation, decent GDP growth, employment 4. stable or improving geopolitical conditions--no populist outrage, favorable tax rates, no losing side of wars, no cataclysmic climate disasters, zombie apocalypses, etc.
    All of these complex variables factor into the analysis into the ongoing might of the U.S. market. Rather than just empty performance numbers, real human history is what needs to be studied, having an awareness that the emergence of America as the dominant global economic superpower in the last 100 years is actually a rather unusual thing, which is by no means assured in the future. Even more unusual is the rise of the modern multinational corporation--a relatively new thing historically. Who's to really say how long the good times for stocks will last?
    LewisBraham in Fund Discussions
  • Late? That’ll Cost You 50%: (RMD)

    thanks to ted/bee/maurice/msf and all,for all your articles+comments over the years!
    ynot in Fund Discussions
  • Late? That’ll Cost You 50%: (RMD)
    @bee - we've had exchanges on these things before. If these particular strategies work for you, more power to you. They do seem to carry some assumptions that may not apply to some other people, so they're worth pointing out.

    I have a few personal strategy for dealing with RMDs. Consider strategically spending down these taxable IRA dollars first rather than raiding taxable accounts, Roth accounts or Health Savings Accounts, especially between the years of 59.5 and 70.5.
    I'm guessing you're doing this to keep RMDs manageable, i.e. not growing so large that they kick you into a higher tax bracket.
    Say you need $20k/year. You seem to be suggesting that you withdraw approx $23.5K (so that after paying 15% tax, you've got your $20K for expenses). If your taxable account is generating no income (just cap gains when you sell), that works fine for you, since you'd be paying no cap gains tax in that tax bracket.
    An alternative for some would be to tap the taxable account for the $20K in expenses, withdraw the same $23.5K from the IRA (pay the same $3.5K taxes on that), and put the rest ($20K) into a Roth as a conversion.
    Comparing the two strategies - either way, you get $20K to spend, and you've reduced your traditional IRA by $23.5. The difference is that the first way left you with $20K in the taxable account (you spent the IRA distribution), the second way let you move $20K into a Roth (you spent money from a taxable account).

    Fund an H.S.A:
    -Between the age of 59.5 and 65 (when you become medicare eligible) distribute a portion of your tax deferred IRA yearly equal to your maximum H.S.A contribution. This will provide a funding source for my H.S.A as well as make these IRA distributions tax free since there tax liability will be offset by the H.S.A contribution (income tax credit) for that same year.
    You're get an income reduction for the HSA contribution regardless of what's generating the income. That taxable income could be coming from taxable investments or from IRA distributions, or even from a Roth conversion. What matters is that you've got a fixed size "deduction" (the HSA contribution). So the IRA distribution is tax-free (due to the HSA) only to the extent that you have no other ordinary (taxable) income.
    For example, if you contribute $4K to your HSA, and have $1K in taxable income, then only the first $3K of IRA distributions will be tax-free. If you withdraw $4K, then your total taxable income is $5k, and $1k of that is taxable after subtracting off the $4K HSA contribution.

    Fund Itemize Medical Expenses:
    - Between ages (65 -70.5) track medical expenses that are eligible as an itemized tax deduction. Do not use your H.S.A dollars during this time frame to pay for these medical costs. Instead, pay all of these medical expenses with yearly IRA distributions. Using IRA distributions as the funding source for medical related expenses may potentially lowering your taxes on these taxable distributions.
    You can use medical expenses as itemized deductions (subject to a floor of 7.5% or 10% of AGI). To do that, you're right, you can't pay them out of an HSA. This works for some people, but only if they've got really high expenses (relative to their AGI), and if they've got enough other itemized deductions to get them above the standardized deduction. At least I think that's what you're writing about here.
    Each person's situation is different. This strategy seems to work fine for yours.
    msf in Fund Discussions
  • Late? That’ll Cost You 50%: (RMD)
    I'm still looking for a primary source (i.e. tax code, or even IRS) on this. Best secondary sources I've found so far suggest that the "successor beneficiary" simply continues the same distribution schedule. No lump sum is required.
    After an individual retirement account (IRA) owner dies, an IRA beneficiary [e.g. Maurice] may want to name a successor beneficiary to receive his/her remaining share of inherited IRA assets when he/she dies.
    Nonspouse is Original Beneficiary of a Decedent’s IRA:
    A successor beneficiary continues using the existing single life expectancy payout schedule or the original five-year period, whichever was elected by the original nonspouse beneficiary [e.g. Maurice].
    https://www.wolterskluwerfs.com/article/iras-and-successor-beneficiaries.aspx
    What are the rules when you inherit an inherited IRA?
    Jim dies and names [Maurice] as his beneficiary on the beneficiary form. Five years later [Maurice] dies and has named Phyllis, who is a successor beneficiary, on the beneficiary form.
    When Phyllis inherits the IRA five years later, she simply picks up the life expectancy factor where [Maurice] leaves off.
    https://www.irahelp.com/slottreport/inheriting-inherited-ira
    msf in Fund Discussions
  • Late? That’ll Cost You 50%: (RMD)
    From a recent read:
    Roth IRAs (as well as H.S.A.) aren’t subject to the required minimum distributions (RMDs) that apply to most retirement accounts starting at age 70½, so you can let any Roth (and H.S.A) assets continue to benefit from potential tax-free growth for the rest of your life. (T Rowe Price quote).
    FYI:
    -Roth IRAs are inherited tax free.
    -H.S.A are taxable when received as a non-spousal inheritance.
    -Interestingly, Roth 401K account do have RMDs.
    I have a few personal strategy for dealing with RMDs. Consider strategically spending down these taxable IRA dollars first rather than raiding taxable accounts, Roth accounts or Health Savings Accounts, especially between the years of 59.5 and 70.5.
    Fund an H.S.A:
    -Between the age of 59.5 and 65 (when you become medicare eligible) distribute a portion of your tax deferred IRA yearly equal to your maximum H.S.A contribution. This will provide a funding source for my H.S.A as well as make these IRA distributions tax free since there tax liability will be offset by the H.S.A contribution (income tax credit) for that same year.
    Fund Itemize Medical Expenses:
    - Between ages (65 -70.5) track medical expenses that are eligible as an itemized tax deduction. Do not use your H.S.A dollars during this time frame to pay for these medical costs. Instead, pay all of these medical expenses with yearly IRA distributions. Using IRA distributions as the funding source for medical related expenses may potentially lowering your taxes on these taxable distributions.
    Here's a debatable strategy:
    Defer 25% of your IRA well beyond 70.5 by purchasing a QLAC:
    why-a-qlac-in-an-ira-is-a-terrible-way-to-defer-the-required-minimum-distribution-rmd-obligation/
    bee bee in Fund Discussions
  • The Breakfast Briefing Wall Street Stocks Set For Downbeat Open As North Korea Standoff Intensifie
    Makes no difference who is president or who controls Congress. There were no good answers twenty years ago and there still aren't any.
    Old_Joe Old_Joe in Fund Discussions
  • This Fund Invests Only In Companies That Contribute To Trump And Republicans (MAGA)
    The Citizens United Supreme Court ruling basically legalized graft and influence peddling:
    latimes.com/nation/la-na-court-mcdonnell-corruption-20160627-snap-story.html
    I'm sure that George Soros and Hillary Clinton were as happy as one over the USSC ruling referenced above.
    I agree with Lewis that individual company influence at the state/local level is likely more potent; I had been thinking more in terms of national influence (see thread subject). I also agree with Maurice that this fund is a gimmick.
    The case in the article cited and George Soros (as contributor) do not depend on Citizens United. The underlying problem is that the Supreme Court said decades ago that money was equivalent to speech. Citizens United merely extended that idea to companies and such. Regarding corporations as people (or at least sharing certain rights with people - see Hobby Lobby), it follows that corporations, like "other" people, can spend whatever they wanted on a candidate in their exercise of "free" (there's an irony for you) speech.
    Individuals have been able to throw money at candidates, well, freely, for many years.
    The Hill (2016), Happy birthday to the case that was even worse than Citizens United
    msf in Fund Discussions
  • Ben Carlson: The Biggest Risk For Most Retirees
    FYI: Risk is a tricky concept to grasp because most people don’t really understand what their true risks are. We tend to worry about things that are readily available in our memories while spending little time worrying about problems that could be years or decades out into the future. For the majority of investors, their biggest risk is not meeting their goals, or worse, running out of money. This piece I wrote for Bloomberg looks at a study that sheds some light on another risk associated with longevity.
    Regards,
    Ted
    http://awealthofcommonsense.com/2017/08/the-biggest-risk-for-most-retirees/
    Ted Ted in Fund Discussions
  • Berkshire Hathaway Hits Another Grandslam Homerun
    Thanks @Maurice for posting this.
    "Buffett’s firm pulled the trigger on a 2011 options deal that lets it buy 700 million shares — at a 70 percent discount to its share price — all for bailing out the bank when it was facing questions about its soundness."
    Note that Buffett was patient and waited 6 years for his bet to pay off. And note that he invested in the bank when many considered it a "falling knife" and were fleeing. But Buffet's patience paid off and he gets the last laugh.
    I saw him on Bloomberg today and, although he's 15-20 years older than me, he appears to have more energy. Yikes. All that CocaCola I guess. :)
    hank in Fund Discussions
  • Morningstar's Top Rated Funds Unlikely To Give Investors Best Returns t.maddell monthly read
    I have minor issues with his methodology and definitions. Nevertheless, his conclusions are reasonably valid. Though rather than saying that there's an inverse relationship (negative correlation) between analyst rating and actual future performance, I'd be more inclined as to describe the relationship as none or random.
    M* says that "The Analyst Rating is based on the analyst's conviction in the fund's ability to outperform its peer group and/or relevant benchmark on a risk-adjusted basis over the long term."
    The author looked at raw performance, not risk-adjusted performance. So that's one issue. Another is related to the definition of analyst ratings. Obviously M* isn't really looking at a fund's ability to outperform its relevant benchmark. Else how could it give VFINX a gold rating, when with near certainty it will underpeform its relevant benchmark over any time period? M* is really rating funds against their peers.
    With that in mind, a better (or at least different) analysis would be to look at the percentage of gold, silver, bronze, neutral, and negative funds that outperformed their peers over his selected five year period (1/1/2012 - 12/31/2016). Using this metric, the results are virtually independent of rating.
    6/27 (22%) of large cap gold funds failed to beat their category peer average. (Two additional funds were merged out of existence: Vanguard Tax-Managed G&I, and Morgan Stanley Focus Growth).
    3/15 (20%) of large cap silver funds failed to beat their peer average.
    3/11 (27%) of large cap bronze funds failed to beat their peer average.
    No neutral funds (out of 11 survivors) failed to beat their peers, though Columbia Value and Restructuring (UMBIX) and Putnam Voyager (PVOYX) were merged away.
    The author reviews only one of the two negatively rated funds. I assume that's APGAX. Aside from a grouping of just one fund not being meaningful, this fund changed management almost immediately (Feb 2012). Curiously, M* still refuses to rate this now five star fund above neutral, because it says that five years history isn't long enough. The other negatively rated fund, the one I think the author disregarded, is LMGTX. This one also changed in 2012, even more significantly. It changed from being classified domestic to being classified foreign.
    Another problem with the analysis is that because of the funds M* selected, there is a tendency to double count. It's as if M* gave medals in 1998, and awarded gold to half a dozen Janus funds, all virtual copies of each other.
    That's what happened with at least a couple of families: Yacktman (where gold Yacktman and silver Focused both underperformed), and Weitz (silver Value and gold Partners Value both underperformed).
    Overall, I think the best (worst?) you can say is that the analyst ratings are a better indication of which funds are popular (M* doesn't pay much attention to lesser-followed funds) than they are any indication of how funds will perform.
    msf in Fund Discussions
  • Despite Misleading Ads, Annuities Can Be Critical For Lifetime Income Planning
    @msf,
    Much of the complexity arises from insurance companies' efforts to give people high-priced features that they think they want but don't need. Such as return of principal.
    When I considered an annuity for myself a few years back (almost 8 years now) it was somewhat comforting to know that my lifetime income stream also had what I called a "cash value". This "cash value" has incrementally been drawn down with each annuity payment I have received (at a rate equal to 25% of all annuity payments). So, in a sense, each annuity payment consist of 75% return "on principal" and 25% return "of principle".
    I have calculated that somewhere in my mid 80's I will have "drawn down" the cash value. Prior to that my beneficiaries will receive a death benefit equal to the annuities starting value minus 25% of the total payout over the life of the annuity.
    What seemed missing in the article is the fact that we are in a very low interest rate environment and this could be a singular reason to not lock ones money up in an annuity product (whatever flavor) at such low rates.
    bee bee in Fund Discussions
  • Hey, I directed some folks here for fund and related investment discussion. Is this still valid?
    Hi @Maurice
    Thank you for the reply.
    The overall comments were of this type:
    1. They didn't mind the mix of the political as relative to effect upon the markets. They think this is indeed valid. But, obviously as we know too; when the topic of a statement or question about politics moved away from the investment effect and the thread became a shout down about politics.
    2. Threads that started with a direct question about a fund or funds and others opinions; but that also wandered away from the original question or statement into some other subject matter, not really related.
    3. Personal attacks, the cat fights.....
    I will offer my own "thread start" example. I have not and will not post such a question here.
    As Mr. Trump and the Republican party has had and continues to have problems regarding any resolution related to a "changed" healthcare legislation; what impact will this have upon healthcare sector investments? I suspect not all healthcare sectors would have the same investment pluses or minuses from changes.
    This is a valid question for our house, as 35% of portfolio at this time, is invested in various healthcare sectors. I imagine this thread would blow up regarding argues ranging from libertarian to communist forms of "healthcare" for the regular folks.
    Getting close to an unwind of the more active involvement with our portfolios anyway. So, "Happy Trails to You, until we meet again....." will be the future song relationship for this house.
    ADD: I had a few email exchanges with Roy (FundAlarm) over the years about a few posts. :)
    Take care,
    Catch
    catch22 catch22 in Fund Discussions
  • What Device Do You Use To Buy Or Sell Funds, ETF's, Stocks, Bonds, etc.?
    Hi Guys,
    While what device is used to complete a trade is the specific topic under discussion, that's a detail that doesn't inspire me too much. A far more meaningful discussion would center on how a decision to trade is made and what tools are used to help make that decision. I'll focus my reply on that issue.
    Based on my earlier posts, you guys all know where I'm going. The single most useful tool to guide the investment decision is a well organized and easy to use Monte Carlo simulator. All kinds of what-if scenarios can be quickly explored in terms of options and likely outcomes. These simulators output the range of possible outcomes and the odds of a successful survival for specified timelines.
    Here are two Links that get you to a free simulator that explores 1000 possible scenarios for every case examined:
    http://www.flexibleretirementplanner.com/wp/
    https://www.portfoliovisualizer.com/monte-carlo-simulation
    I have used both tools extensively. They are reliable codes. These websites have been functional for many years.
    Explore the impact of inflation rates, withdrawal rates, estimated returns, the standard deviation of those estimates, and various timeframes on endpoint outcomes. These can all be evaluated in just minutes.
    Making minor adjustments to a proposed plan can enhance a survival likelihood significantly. Small changes do matter, and these tools can guide you in the right direction. Avoiding a dangerous portfolio decision is priceless. Pitfalls are everywhere.
    Please consider adding these tools to your decision making toolkit. They'll contribute to your understanding of what is important and what is not so critical. Your comfort zone will be increased. Relax!
    Best Wishes
    MJG in Fund Discussions
  • What Device Do You Use To Buy Or Sell Funds, ETF's, Stocks, Bonds, etc.?
    I've checked brokerage balances, maybe even made trades from transit stations. Just killing time waiting for trains. Platforms used to have payphones, and brokers didn't add a surcharge for automated phone orders (800 numbers).
    Though I don't think this is quite what you had in mind for trades executed by phone.
    A few years ago I made a Roth conversion in Asia, when the market swooned. (On my laptop using a friend's home network.) Had the market taken a nosedive while we were away last month, I would have done the same thing.
    Never anything unplanned though. Not like the ad (which always reminds me of the downing of a US plane in Hainan, 2001).
    msf in Fund Discussions
  • What Device Do You Use To Buy Or Sell Funds, ETF's, Stocks, Bonds, etc.?
    A dedicated laptop with exactly five dropdowns on it (3 brokerages, one bank and one credit card company.) No surfing, no e-mail. So far, no spam, or other incoming junk. Three years and hoping. Probably will add the two-step verification thing.
    hawkmountain in Fund Discussions
  • Indexing In America: Why It Took Root Here
    FYI: Tocqueville laid out why Americans, sooner than any other nation, would prove apt to embrace indexing 150 years later.
    Regards,
    Ted
    http://news.morningstar.com/articlenet/article.aspx?id=823295
    Ted Ted in Fund Discussions
  • What Device Do You Use To Buy Or Sell Funds, ETF's, Stocks, Bonds, etc.?
    I use my iPhone for information and limited trading while I am on the road. Otherwise I use Macs and Linux for everything else. Much secure than Windows PC.
    We left our brokers years ago as we embrace the coming of the information age. The internet leveled the playing field on investment ideas and choices for those who want to be informed investors like ourselves. So we don't use brokers at all.
    Sven in Fund Discussions
  • JP Morgan Global Allocation Fund (gaoax)
    It seems to be pretty much in line with the usual suspects, CAIBX, MDLOX, SGENX, TIBIX.
    Slightly better performance, but looking at its portfolio, that could be explained by its slightly more aggressive stance. It's a bit more growthy than the others; allocation funds typically lean toward value.
    It also piles on the junk bonds with 1/4 BB, 1/4 B, 1/10 below B. That's similar to TIBIX (the other funds hold much higher rated bonds). But unlike TIBIX it uses a barbell strategy with 1/4 AAA-rated. (TIBIX has 1/3 in BBB, and little above that.)
    Counterbalancing the higher credit risk is a much reduced interest rate risk with a very low duration of 1.88 years, unlike the other funds.
    The only downside I see is the potential end of the fee waiver (0.24%, currently set to expire 2/28/18, but these are often extended indefinitely). On the plus side, it's significantly smaller than the funds above.
    BenWP's RPGAX is not a fund that one (or at least I) normally think of. But it may be the one closest to GAOSX. Similar growth leaning, similar average market cap, virtually identical std dev and Sharpe ratio. The bond side has a little less junk though still a lot, and is a little more evenly spread out in credit ratings, but still has a barbell feel. Much longer duration though. RPGAX has the lowest AUM of all the funds mentioned.
    msf in Fund Discussions